Managing debt with 0% balance transfer cards

If you’re not accustomed to borrowing money and managing your finances with personal loans and credit cards, then taking out a credit card is the last thing you would do to help you pay off your debts.

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However, there are certain offerings on the market which can make a great deal of financial sense to anyone who has acquired a considerable amount of debt.

Used responsibly, a credit card can offer the ultimate solution for debt management by allowing you to consolidate debts from different accounts or transfer debts from high-interest sources to a more favourable account.

Credit cards with balance transfer explained

A 0% balance transfer credit card deal will enable you to transfer a certain amount of money into the new account without having to pay any interest for a set period of time.

However, you will have to pay a one-time fee when you transfer money. This is typically anything in the region of 2.5% to 3% of the balance transferred.

Once you have transferred the money and paid this fee, you will have a certain amount of time to pay off the debt without having to pay any interest on it.

Managing your debt

While you can simply leave the debt and forget about it for the entirety of the interest-free period (so long as you pay off the minimum charge every month), this is not advisable.

Once the interest-free period reaches an end, you will have to pay a high amount of interest on any remaining debt. This is usually 18.9% or more. For this reason, it is a good idea to put money aside every month in order to pay off the debt within the interest-free period.

However, there is also no point in paying off the debt prematurely, since this can actually end up leaving you out of pocket.

For example, you can keep putting money into an ISA account or any other savings account in order to earn interest on it.

You can then pay the minimum amount every month on your 0% balance transfer credit card, and just before the interest-free period ends, you can pay off the debt in full with the money you’ve saved.

Always check the balance transfer fee, length of the offer, and the APR before applying for a 0% balance transfer credit card

This is one of the best possible ways to pay off your debt and manage your finances in such a way that you actually earn interest rather than paying it.

With 0% balance transfer credit cards, it is important to remember that they are generally not the most suitable option for things like purchases and withdrawals.

In fact, many people who take advantage of such a credit card deal don’t use the credit card for anything else.

This is because interest rates on purchases and withdrawals tend to be significantly higher than they are with standard credit cards. If you want a credit card better suited to other purposes, then you should consider getting an additional card.

You can manage your debt to make money with an interesting, if complicated, practice called stoozing. Where you proactively borrow on 0% credit cards and deposit the money in high earning accounts, to generate extra money on the side.

Transferring debt to a credit card

Once you have transferred your debt to the new credit card, it is a good idea to close your old accounts if you do not intend to use them again. This will prevent you from spending money on other accounts only to increase your debt.

Additionally, having fewer lines of credit, even if you do not have debts on them, tends to be better for your credit rating.

Top 3 balance transfer credit card factors

There are a number of features that affect whether or not one balance transfer credit card is better than another one.

Ultimately, the main factor is you. Does it suit your needs? Will one card help improve your finances better than another?

Aside from these factors, however, there are three key points you should always look at before taking any interest in the additional credit card perks and benefits.

The balance transfer fee. How much you’ll play for the balance transfer – does it weigh up against the length of the interest-free period?

The length of the interest-free period. Ensure that it provides you with enough time to pay off the debt.

The APR (Annual Percentage Rate). Check what this is on purchases, withdrawals and on the balance remaining after the interest-free period ends.

With the credit card’s balance transfer fee, you need to ask yourself if, say, a 30 month 0% period is worth a fee in excess of £200. Could you pay a higher amount each month and pay it off within 17 months and thus pay a smaller balance transfer fee?

This also ties in with the length of the interest-free period. Is it long enough? Can you pay it off in a shorter time? Shorter is generally better as the balance transfer fee is likely to be smaller, but the minimum monthly payments will need to be higher.

Do you want to save your money over the long run or get it over with as quickly as possible? The longer your balance transfer offer then the more money you stand to save in the long run, but that could leave you straddling debt for a longer period than you’d like.

If you can’t complete the repayment within the introductory 0% period, then is the APR reasonable enough? Once the introductory 0% offer ends, this rate will kick in, so you’l need to be ready to handle the higher monthly repayments.

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